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5 Questions to Ask When Considering a Structured Settlement

Structured settlements — under which a plaintiff compromises a personal injury claim in exchange for a promise of periodic payments for a specified period — are very common in personal injury actions. But it may not be right for every plaintiff. 

Structured settlement proposals are more the rule than the exception when the settlement value of the case exceeds $250,000. They are also are generally appropriate when a lump-sum settlement would exceed $100,000, and may even be used to good effect in cases of much lower value.

Either party may propose a structured settlement.

A typical structured settlement plan consists of an immediate payment of cash by the defendant—typically between 35 and 65 percent of the defendant’s total expenditure on the settlement—with the balance used to fund future payments. Although an annuity is usually purchased to fund the future payments, sometimes the funding assets are United States Treasury bonds. Occasionally, there’s no prefunding arrangement; the plaintiff simply relies on the long term reliability of the defendant or defendant’s liability insurer.

A defense attorney offering a structured settlement will emphasize the benefits of the settlement to the plaintiff. Defense counsel may argue that a particular structure will give the plaintiff important tax advantages, a guard against too-early dissipation of a lump sum, and better overall financial performance than investing a lump sum.

But if you’re representing the plaintiff, don’t let that rosy picture convince you to advise your client to accept a structured settlement. As always, think critically and ask yourself the following questions when evaluating a structured settlement proposal:

  1. Is the future payment plan highly reliable?
  2. Is the annuity that the defense proposes to purchase to fund future payments competitive, i.e., will it generate the highest possible future benefits consistent with acceptable reliability?
  3. If the plaintiff may have a reduced life expectancy, is the proposal based on a competitive age rating?
  4. How effectively will the proposed settlement address the specific future financial needs of the plaintiff and those who are financially dependent on the plaintiff?
  5. How will the proposed settlement affect the plaintiff’s estate plan?

For everything you need to know about structured settlements, including common payment formats and tax treatment, turn to CEB’s California Civil Procedure Before Trial, chap 49.

© The Regents of the University of California, 2012. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

7 Responses

  1. Thanks for the post, Julie. It’s worth emphasizing that structured settlements are ideal for insulating accident victims from economic uncertainty. Payments can be guaranteed for decades and importantly, are not subject to reductions due to interest rate or market changes.

    Disclosure: I work with the nonprofit National Structured Settlements Trade Assn (nssta.com). For more information about structured settlements, here’s a link to some free handouts:

    http://www.nssta.com/resources/nssta-brochures

  2. Congratulations Julie! You may have just written the most sensible, concise and balanced blog post on structured settlements ever.

    The legal community is well served by your post which emphasizes the importance of due diligence before entering into structured settlement arrangements. You correctly point out that structured settlements are not always appropriate but then describe the most common scenarios where they do make sense and how they are generally implemented most successfully.

    As a practicing structured settlement professional for more than two decades, I appreciate this valuable service you have provided the attorneys with whom I regularly partner on this topic. Sure, there’s much more to consider as each case is unique but as blogs go, this one hits all the right high notes.

    Well done!

  3. This is really useful! I’m considering getting cash for settlement right now and was looking for more information about what that would entail, what sort of benefits there are versus negatives, etc. Very helpful post!

  4. […] 5 Questions to Ask When Considering a Structured Settlement […]

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